With the RDR looming it’s easy to think that this is the only regulatory change the advice sector is facing. However, the European Commission’s consumer package is about to be published, and Aifa has been closely involved in discussions on this for some time.
The package is intended to encourage further development of a single market for financial services and enhance consumer protection. It comprises a number of measures – the insurance mediation directive II, packaged retail investment products regulation and a further undertaking for collective investments in transferable securities directive. These all sit alongside the proposed changes for investment services under Mifid II. An alphabet soup collection of regulation.
For retail investments, it is proposed that regulatory requirements should align with those in Mifid II. The principal requirement is that it would introduce a ban on commission for independent advice, but commission would still be allowed on other forms of advice.
From a UK perspective that may seem straightforward. The RDR will apply this, and more, from the end of the year. So on the face of it, there may not need to be too much change beyond the RDR. Indeed in the past week, I have heard from both the commission and Markus Ferber, the MEP leading the discussions in the European Parliament, that neither expect or intend the directive to stop member states going further. However, we should not be complacent.
All European legislation is a product of negotiation and compromise between the member states and the European Parliament, so you never know where it may end up. I would be concerned if it upset the level-playing field for advice. The broad sweep of Mifid means there is the potential for other effects, such as the tightening of the opt-out requirements for small firms.
The consumer package will increase regulation of selling protection products and general insurance. While at present, I expect the proposals for commission will require disclosure, there is the risk that there may be attempts to extend the commission ban from investment products.
For me, the most worrying aspect is what these proposals will ask of the European Supervisory Authorities. The ESAs were set up in 2011 to promote convergence of supervision and the directives will invite them to produce technical standards on a range of topics.
This has the potential to be a constant stream of rule tweaking in the name of harmonisation. So even when the overarching regulations are fixed, we can expect further changes.
All this additional regulation can be demoralising, but it is important for us to fight our corner, which is exactly what Aifa is doing at the European level. It may not be a particularly positive note to finish on but this demonstrates it is not always the FSA’s fault.
Chris Hannant is policy director at Aifa